In re 222 Liberty Associates
| Decision Date | 23 June 1989 |
| Docket Number | Bankruptcy No. 88-11535S,Adv. No. 88-2193S. |
| Parties | In re 222 LIBERTY ASSOCIATES, Debtor. 222 LIBERTY ASSOCIATES, Plaintiff, v. EESCO ELECTRIC, INC. and United States Fidelity and Guaranty Company, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Joseph A. Prim, Jr., Paul J. Duca, Philadelphia, Pa., for defendants.
Stephen Raslavich, General Counsel, Philadelphia, Pa., William Goldstein, Sp. Counsel, Bensalem, Pa., for debtor.
Robert J. Casey, Philadephia, Pa., for Philip J. Banks.
Laurence J. Kaiser, Kronish, Lieb, Weiner & Hellman, New York City, for Donald L. Wolk.
Andrew N. Schwartz, Philadelphia, Pa., for Creditors' Committee.
ADJUDICATION
1. The bankruptcy case underlying this proceeding was commenced on May 3, 1988, when an involuntary Chapter 7 petition in bankruptcy was filed against 222 LIBERTY ASSOCIATES, the Debtor and Plaintiff in this lawsuit (hereinafter "the Debtor"), A consensual order for relief and an order converting this case to Chapter 11 were ultimately entered on September 8, 1988.
2. On November 10, 1988, the instant adversary proceeding was commenced by the Debtor against EESCO ELECTRIC, INC. (hereinafter "the Defendant," as it is the primary party defendant) and UNITED STATES FIDELITY & GUARANTY COMPANY (hereinafter "USFG"), (collectively the Defendant and USFG are referred to as "the Defendants."). After a series of continuances caused in part by disqualification of the initial general counsel of the Debtor and replacement of not only the original general counsel, but also the original special counsel appointed to litigate this proceeding, the proceeding was scheduled for trial on May 9, 1989, on a "must be tried" basis.
3. The trial was in fact commenced on May 9, 1989, and, after about two hours of testimony on that date, was completed after an additional full day of trial on May 15, 1989.
4. At the conclusion of the trial, the parties opted for a "fast-track" disposition schedule, eschewing preparation of a trial transcript and agreeing that the Debtor would submit proposed findings of fact, conclusions of law, and any supporting memoranda on or before May 26, 1989, and the Defendants would respond in kind on or before June 5, 1989. The parties complied with this proposed schedule.
5. The Debtor is a limited partnership which has been in the process of renovating its sole asset, an antiquated 12-story office building located at a desirable spot in center city, 110 South 16th Street, Philadelphia, Pennsylvania (hereinafter "the Building"), since its purchase in June, 1985.
6. The two general partners of the Debtor are Philip J. Banks (hereinafter "Banks"), who supervised the daily administrative affairs of the Debtor, and Donald L. Wolk (hereinafter "Wolk"), who provided most of the financing for the purchase of the Building. Differences have arisen between Banks and Wolk, see In re 222 Liberty Associates, Cohen v. 222 Liberty Associates, 99 B.R. 639 (Bankr.E.D.Pa. 1989), although Wolk has presently proposed a Plan of Reorganization which, in the increasingly unlikely possibility that it is confirmed, could resolve all outstanding disputes surrounding the Debtor.
7. In July or August, 1986, the Debtor solicited bids for electrical work on the Building. In so doing, it presented the Defendant, as a bidder, with drawings prepared by the Debtor upon which to base its bid. These drawings, with respect to the third through the twelfth floors, included the following statement: "Partitions — remove all partitioning not required by existing tenants or building core functions to conform to `Typical Floor Plan.'"
8. After a review of the drawings and inspection of the Building, the Debtor prepared three Proposals for performing the work. These Proposals were incorporated into three separate "Contractor's Agreements" between the parties, the balance of which, appended to the Proposals, was prepared by the Debtor. Interpretation of and the extent of the Defendant's performance under these Agreements, executed by the parties on September 8, 1986, are the subject of this litigation.
9. The first Agreement (hereinafter "Agreement I"), contemplated the Defendant's replacement of the entire outmoded existing "two-phase" electrical system of the Building with a modern "three-phase" system, for a total price of $140,000.00.
10. Agreement I was bonded by a Performance Bond, guaranteeing all liability of the Defendant, issued by USFG on October 9, 1986. There was no bond in place in reference to any of the other contracts between the parties.
11. The second Agreement (hereinafter "Agreement II") contemplated installation of a fire alarm system "in accordance with the latest city of Phila.Codes" with "6 portable phones, 58 speakers, 18 pull stations, 28 smoke detectors and elev. recall," at a total cost of $35,650.00.
12. The third Agreement embraced three Proposals pertaining to supply of stairwell and exit lights and furnishing and installing several items pertaining to the heating, ventilation, and air conditioning system (hereinafter "HVAC") of the Building. The total cost for all items included in this Agreement was $33,345.00.
13. The Agreements each provided that periodic payments of up to ninety (90%) percent of the contracts would be paid while the work was in progress and that ten (10%) percent would be held as retainage until the work was completed satisfactorily. The Debtor's source of funds was a construction loan from Goldome Realty Credit Corporation (hereinafter "Goldome"), which paid the Defendant through a draw-down by the Debtor.
14. The Agreements did not include any provisions as to when work would be performed, but it was understood by the parties that the Debtor desired all of the work to be done as soon as possible, and the Defendant accordingly commenced work immediately.
15. In October, 1986, the Defendant approached the Philadelphia Electric Company (hereinafter "PECO"), to arrange to energize the new system, which would be necessary at the completion of the work in the Building contemplated by Agreement I to allow the three-phase system to become functional. However, PECO advised the Defendant that it would not begin work necessary to energize the new power system unless and until the Debtor made arrangements to pay outstanding bills, and the Defendant so advised Banks. Banks informed the Defendant that he would make the necessary arrangements with PECO to pay the bills.
16. In addition to the three (3) Agreements referenced above, the parties entered into additional contracts on March 9, 1987, for electrical work to be done on the eleventh floor of the Building and contracts for extras on November 7, 1986, and February 4, 1987, which were performed without incident.
17. In April, 1987, the Defendant had completed almost all of the work under the additional contracts and had completed all of the work that could be done under the original Agreements without the system's being energized by PECO. However, the Debtor was unable to make arrangements with PECO to supply power to the Building at that time after all. As it developed, no arrangements were made until August, 1987, and the connection was not completed by PECO until October 27, 1987. Therefore, the Defendant, by apparent agreement of the parties, left the job site in late April, 1987.
18. The Defendant contended, throughout the period that it was working on the job, that dispatches of payments from Goldome that were intended for it were delayed by the Debtor. However, by June, 1987, correspondence sent to Goldome by the Defendant indicated that the Defendant had received ninety (90%) percent of the sums due under the Agreements.
19. At some time between April, 1987, and October, 1987, the Defendant, apparently frustrated by the unanticipated delay in the project and the previous payment problems, removed certain fuses and keys from electrical equipment that it had installed as part of the new three-phase system, without the Debtor's knowledge or consent, which it knew would prevent PECO from completing the street connection. Tyrone P. Ridlon (hereinafter "Ridlon), the Defendant's principal, initially contended that this action was taken for safety reasons and because he believed that the Defendant was entitled to remove its property. However, we find that, given the surreptitious manner in which this act was done, its sole purpose was, as Ridlon later admitted, to pressure the Debtor to guarantee the final payments to it as a condition for finishing its work in light of the Debtor's now-apparent financial problems.
20. On October 2, 1987, Banks wrote to Ridlon and demanded that the Defendant return to finish the job now that PECO was prepared to make the connection. Ridlon, by letter of October 9, 1987, responded that the Defendant would return to finish the job, which Ridlon estimated would take only three or four more days, only if the Debtor agreed to place the retainage representing the balance due in escrow with the Defendant's attorney.
21. Banks testified that he did not intend (or may not have had sufficient funds) to comply with this condition and proceeded to hire Stewart Electric, Inc. (hereinafter "Stewart") to replace the fuses and keys removed by the Defendant and prepare the system for PECO's connection. Banks testified that Stewart charged the Debtor $4,968.00 for this work and, over the Defendant's objection, identified a bill in this amount to support his testimony which we ultimately admitted into evidence.
22. Although PECO made its connection, the work necessary in the Building to connect the three-phase system which the Defendant was to install has never been completed, and the system is therefore not operational. As a result, the Debtor continues to use the original two-phase system to provide electrical power to the Building. Banks testified that he has received...
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